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What Is PancakeSwap (CAKE)?

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by José Oramas · 6 min read
What Is PancakeSwap (CAKE)?
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The guide provides an explanation on PancakeSwap (CAKE) – BSC-based DEX that facilitates the trading of BEP-20 tokens and implements AMM.

One of the most interesting food-theme decentralized finance (DeFi) protocols is PancakeSwap (CAKE). It has similar features to Uniswap (UNI) and SushiSwap (SUSHI) but unlike other platforms that run on Ethereum (ETH), PancakeSwap uses Binance Smart Chain (BSC), a complementary network of the Binance Chain (BC).

PancakeSwap is a decentralized exchange (DEX) that has been created on the Binance Smart Chain. It facilitates the trading of BEP-20 tokens and implements an automated market maker (AMM) model to provide liquidity and allow users to create income streams from their cryptocurrencies.

PancakeSwap Founders

The main developers behind PancakeSwap remain anonymous. The only thing known is that the protocol uses BCS technology and it is audited by Certik.

How Does PancakeSwap Work?

The protocol allows several enhanced features that make it different from other DeFi protocols. While Ethereum has been the pioneer for the DeFi ecosystem, some of the best features and functions were dismissed. As this happened, users started to migrate to PancakeSwap as it provides better overall performance. Its features include trade BEP-20 tokens, interacting of Ethereum-based dApps with BSC-based dApps, farming, staking, and lottery, as well as community-governance network.

Wallet Use

To use PancakeSwap, you need to set up your wallet first. You can choose to have a Binance Smart Chain wallet or use Metamask, the most popular Ethereum and ERC20 standard wallet. While Metamask is an Ethereum wallet, you can still use it for BSC-based apps. Users will need to unlock their wallets to access additional features of the protocol.

Liquidity

Users can add liquidity to the protocol by adding their tokens to permissionless liquidity pools (LPs). In return, they receive so-called FLIP tokens – PancakeSwap’s liquidity provider tokens. As the overall value of the pool rises, these tokens also appreciate. The permissionless liquidity pools allow users to earn without the need to directly trade their assets directly. On average, users’ yields range from 23.52% to 378.19%. Notably, these rewards are paid out in form of the platform’s native CAKE token.

Staking

By adding liquidity to the pools, users get LP tokens as a reward. Then, there are several options available:

  • Receiving CAKE via staking of LP;
  • Staking CAKE to earn even more CAKE;
  • Staking CAKE to earn tokens from other projects.

Farming

PancakeSwap also allows users to farm CAKE tokens. Farming means extracting the most out of a token or crypto. With PancakeSwap, there are a few popular options to choose from:

  • CAKE – BNB LP
  • BUSD – BNB LP
  • BETH – ETH LP
  • USDT – BUSD LP
  • USDC – BUSD LP
  • DAI – BUSD LP
  • LINK – BUSD LP
  • TWT – BNB LP

Once you deposit your LP tokens, you can lock them up and start the farming process. In exchange, you receive CAKE.

Syrup Pools

Syrup Pools are the main yield aggregators where you can stake your CAKE. You can also stake CAKE in Pancake Bunny Pools – new SYRUP pools where you can earn BUNNY tokens. Notably, the main Syrup Pool is for CAKE. Many PancakeSwap users deposit their tokens there to receive CAKE.

Lottery

Users can participate in a lottery session in PancakeSwap. These sessions last six hours, and every ticket costs 10 CAKE tokens. The ticket gives a participant a random combination of four digits, their numbers range from 1 to 14. The jackpot is 50% of the lottery pool. To win it, the numbers must match all of the four combinations in the exact order. But even if you lose, you can also win rewards, if at least two or more of your numbers match some of the ticket numbers.

PancakeSwap Exchange

The protocol uses the automated market maker (AMM) model to provide liquidity for traders. Unlike the traditional order book used by centralized exchanges (CEXs), an AMM relies on a particular algorithm to price assets.

This algorithm adds liquidity from several digital assets in smart contracts (they are called liquidity pools). In the typical order book, you need to have a buyer and a seller, which usually ends in a lack of liquidity. With an AMM, you can buy and sell in a liquidity pool.

The key feature of the PancakeSwap is trading BEP-20 tokens instead of ERC-20 tokens. You could also deposit your funds to add liquidity to the pools. In exchange for your funds, you receive Liquidity Provider (LP) tokens, called CAKE, the native and governance asset of PancakeSwap, which you can farm and stake to earn rewards.

The trading fee on PancakeSwap totals 0.2%. 0.17% goes to liquidity providers and the rest, 0.03%, goes to PancakeSwap Treasury which is burnt.

Initial Farm Offering (IFO)

There is an interesting feature of PancakeSwap: it allows you to launch your own projects in the BSC community. By using the power of yield farming, users can launch their tokens in the most active pools and receive rewards for it. The process is simple.

Firstly, before the IFO sale process, developers can buy Binance Coin (BNB) and CAKE tokens. Then, they get CAKE-BNB LP tokens by adding CAKE and BNB liquidity. Secondly, the sale process starts. The developers will have to commit CAKE-LP tokens to buy the IFO tokens. And after the sale, users claim the purchased tokens besides any unspent funds.

Non-fungible Tokens

With PancakeSwap, you can also win non-fungible tokens (NTFs). NFTs are digital representations of unique items. They can include digital albums, figures, or representations of precious metals.

The protocol has a page for NFT winners. The winners are chosen randomly, so users should keep an eye on the page.

Notably, your NFT can be kept in your wallet or you can trade them for CAKE.

What Makes PancakeSwap Unique?

Apart from enhancing features similar to other food-theme protocols, PancakeSwap offers an effective user interface and options like NFT rewards, lottery, farming, staking, and much more. It supports MetaMask, Trust Wallet, TokenPocket, MathWallet, and WalletConnect.

In addition, PancakeSwap is an overall safe decentralized exchange to use.

Conclusion

Currently, PancakeSwap is the biggest BSC-based AMM project that has millions of active users every day. Since January 2020, the protocol has experienced greater growth. 24 trading volumes exceeded  800 million.

PancakeSwap is taking a greater role in the DeFi Industry every day. Users are also keen to know different DeFi startups that use different technology. Together with Binance, PancakeSwap is meeting users’ expectations for the DeFi space by bringing them a broader ecosystem with unique features, exciting rewards, and better overall performance.

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FAQ

What is PancakeSwap?

PancakeSwap is one of the many food-theme DeFi protocols with features similar to Uniswap and Sushiswap. Unlike these platforms, PancakeSwap runs with Binance Smart Chain (BSC), a complementary network of the Binance Chain (BC).

PancakeSwap is a decentralized exchange (DEX) that has been created on the Binance Smart Chain. It facilitates the trading of BEP-20 tokens and implements an automated market maker (AMM) model to provide liquidity and allow users to create income streams from their cryptocurrencies.

Who created PancakeSwap?

The main developers behind PancakeSwap remain anonymous. The only thing known is that the protocol uses BCS technology and it is audited by Certik.

What is CAKE token?

CAKE is the native and governance asset of PancakeSwap, which you can farm and stake to earn rewards. PancakeSwap allows you to farm CAKE. Farming means extracting the most out of a token or crypto. With PancakeSwap, there are a few popular options:

  • CAKE – BNB LP
  • BUSD – BNB LP
  • BETH – ETH LP
  • USDT – BUSD LP
  • USDC – BUSD LP
  • DAI – BUSD LP
  • LINK – BUSD LP
  • TWT – BNB LP

Once you deposit your LP tokens, you can lock them up and start the farming process. In exchange, you receive CAKE.

What is SYRUP?

Syrup Pools are the main yield aggregators where you can stake your CAKE. You can also stake CAKE in Pancake Bunny Pools — new SYRUP pools where you can earn BUNNY tokens. 

Notably, the main Syrup Pool is for CAKE. Many users deposit their tokens there to receive CAKE.

What is the difference between staking and farming?

Yield farming is a process of locking your funds in lending pools where other borrowers lend their funds in exchange for interests. On the other hand, Staking is a mechanism that works with Proof-of-Stake (PoS), where a validator creates a block using a random selection process. The higher the stake, the greater the return.

What are the pros and cons of PancakeSwap?

The advantages of PancakeSwap include support for other wallets by being a BSC-based dApp, NFT rewards, new integrations and developments for liquidity pools, lottery opportunities, unique features in comparison with most DeFi protocols, using Automated Market Maker (AMM) model. 

However, there are also risks. Firstly, Automated Market Maker carries the risk of impermanent losses. Secondly, the protocol is only audited by one source. Besides, the anonymous team is a problem, as anonymity usually drives away users who are keen to know the team behind the protocol.

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